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Electronic arbitration agreements: are they “written” for purposes of the Federal Arbitration Act?

Enforceable arbitration agreements can be an effective tool in limiting liability exposure for healthcare providers, not only as to patient lawsuits, but also with employee and vendor actions. As more and more contracts are executed electronically, however, the question arises whether electronically executed arbitration agreements can be enforced.

The “Written Provision” Requirement of the Federal Arbitration Act

The Federal Arbitration Act (FAA)1 generally requires the enforcement of “written” arbitration agreements contained in contracts involving interstate commerce. More specifically, it requires a “written provision” addressing arbitration in the contract, or an “agreement in writing to submit to arbitration.”2 At the time of the FAA’s passage, the proliferation of electronic signatures and contracts was likely not contemplated; thus, we look to other legislation and court interpretations for an analysis of the “writing” question.

The Enforceability of Electronic Contracts Under the E-SIGN Act

For practical purposes, the enforceability of electronic agreements is governed by the federal Electronic Signatures in Global and National Commerce Act (E-SIGN).3 E-SIGN provides:

A signature, contract or other record relating to such transaction may not be denied legal effect, validity or enforceability solely because it is in electronic form. 4

A contract relating to such transaction may not be denied legal effect, validity or enforceability solely because an electronic signature or electronic record was used in its formation.5

[E-SIGN does not] limit, alter or otherwise affect any requirement imposed by a statute, regulation or rule of law relating to the rights and obligations of persons under such statute, regulation or rule of law other than a requirement that contracts or other records be written, signed or in nonelectronic form.6

[E-SIGN does not] require any person to agree to use or accept electronic records or electronic signatures.7

Under E-SIGN, an “electronic signature” is defined as an “electronic sound, symbol or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record.”8 Courts have consistently interpreted this definition to apply to any overt action that conveys a manifestation of assent on behalf of the contracting parties.

Are Electronic Arbitration Agreements Covered by the FAA?

While the FAA applies only to “written provisions” or “agreements in writing,” the few courts that have explicitly tackled the issue have had no difficulty concluding that electronic arbitration agreements satisfy the “written provision” requirement and, therefore, fall under the purview of the FAA. For example, in Campbell v. General Dynamics Gov’t Sys. Corp.,9 the First Circuit noted that “[i]n all events, [E-SIGN] likely precludes any flat rule that a contract to arbitrate is unenforceable under the ADA solely because its promulgator chose to use e-mail as the medium to effectuate the agreement.”10 The Court announced that “[b]y its plain terms, [E-SIGN] prohibits any interpretation of the FAA’s ‘written provision’ requirement that would preclude giving legal effect to an agreement solely on the basis that it was in electronic form.”11 Similarly, in In Re RealNetworks, Inc., Privacy Litigation,12 the Northern District of Illinois concluded that a contract’s “easily printable and storable nature is sufficient to render it ‘written.’”13 “Thus,” the court concluded, “the [electronic] License Agreement, including the arbitration provision is a written agreement.”14 Additionally, many courts have enforced electronic arbitration agreements under the FAA, thereby implicitly determining that such agreements constitute “written provisions” or “agreements in writing” such that they fall under the FAA’s scope.15 Therefore, electronic arbitration agreements likely fall within the purview of the FAA.

Are There Any Issues Unique to Electronic Arbitration Agreements?

Notwithstanding the general enforceability of electronic contracts, contracting parties must remain cognizant of the general rules of contract law, including the formal rules associated with valid contract formation, the manifestation of assent and the equitable concept of unconscionability. Moreover, it is important to recognize the differences between traditional contracting and electronic contracting and to ensure that the electronic contract adequately informs the consumer of the terms of the agreement. Generally speaking, where courtshave refused to enforce electronic contracts, the refusal has been based on an inadequate communication of the terms of the proposed contract. For example, although the Campbell court recognized generally the validity of electronic arbitration agreements, it ultimately determined that the subject e-mail communications did not form an arbitration agreement because the substance of the e-mail communication was insufficient to advise an objective recipient that it was intended to alter the terms and conditions of employment.16

Therefore, issues unique to electronic arbitration agreements focus more on the design of the electronic arbitration agreement rather than on the substance of the agreement.17

Conclusion

Structured properly, electronic arbitration agreements can be enforced under the FAA. This emerging model, however, creates unique issues and parties who wish to use electronic arbitration agreements will benefit from legal counsel to ensure valid contract formation.

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